Quick Facts

The Philippines’ economic freedom score is 62.2, making its economy the 76th freest in the 2015 Index. Its score has increased by 2.1 points since last year, with notable improvements in financial freedom, freedom from corruption, and labor freedom outweighing declines in business freedom and the management of public spending. The Philippines ranks 13th out of 42 countries in the Asia–Pacific region, and its overall score is above the world and regional averages.

Registering one of the 10 best score improvements in the 2015 Index, the Philippines has charted an upward trajectory of economic freedom for the past five years, further advancing into the “moderately free” category. Wide-ranging reforms to address structural weaknesses and improve overall economic competitiveness have put greater emphasis on improving regulatory efficiency, enhancing regional competitiveness, and liberalizing the banking sector. Demonstrating a high level of resilience and overcoming the devastating impact of the massive typhoon that ripped through the central part of the country, the Philippine economy has recorded an average growth rate exceeding 5 percent over the past half-decade.

Despite notable progress since 2011, however, lingering institutional challenges will require a deeper commitment to reform. Corruption continues to be a serious cause for concern, jeopardizing prospects for long-term economic development. The inefficient judiciary, which remains susceptible to political interference, does not provide effective protection for property rights or strong and transparent enforcement of the law.

Background

The Philippines’ diverse population, speaking more than 80 languages and dialects, is spread over 7,000 islands in the Western Pacific. Democracy was restored in 1986 after two decades of autocratic rule. President Benigno Aquino III took office in 2010 with a mandate to root out corruption. While agriculture is still a significant part of the economy, industrial production in areas like electronics, apparel, and shipbuilding has been growing rapidly. Remittances from overseas workers are equivalent to more than 10 percent of GDP.

Corruption, state plunder, cronyism, and a culture of impunity remained in the spotlight in 2014 as numerous instances of malfeasance were exposed. Several senators, for example, were arrested on charges of embezzlement of billions of pesos from the Priority Development Assistance Fund. Judicial independence has traditionally been strong, but the rule of law is generally weak.

The top individual income tax rate is 32 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax and environmental taxes. The overall tax burden equals 12.9 percent of domestic income. Public expenditures are equivalent to 18.9 percent of the domestic economy, and public debt equals 38 percent of gross domestic product.

Incorporating a business takes 16 procedures and 34 days. Completing licensing requirements remains time-consuming, taking about three months on average. The labor market remains structurally rigid, with varying degrees of flexibility across economic sectors and regions of the country. Subsidies to state-owned and state-controlled corporations in the power, food, health care, and agriculture sectors were reduced in 2014.

The average tariff rate is 4.8 percent. Domestic companies are favored in government procurement bids. Rice producers are subsidized and protected from competition. Foreign investment in several sectors is restricted. The financial system continues to undergo modernization and liberalization. A new law removing all limits on foreign participation in the banking sector was implemented in 2014.